Charges That Army Officer Misused Funds Are Dropped : Head of Top-Secret Pentagon Unit Wins Court Battle

WASHINGTON —  The Justice Department has dropped an unusual four-year effort to prosecute an Army officer who headed a top-secret Pentagon counterintelligence unit until late 1983, according to U.S. District Court records in Alexandria, Va.

The officer, Lt. Col. Dale E. Duncan, ran classified Army missions abroad under the cover of a Virginia security firm until underlings accused him in the fall of 1983 of misusing tens of thousands of dollars allotted to the secret projects.

Duncan has insisted he is innocent and at one point sued his accusers, who he claimed had “political axes to grind” against him. A U.S. Court of Appeals panel in Richmond, Va., threw out Duncan’s conviction on two of three related criminal charges in May.

Criminal Charges Dropped

While all criminal charges against Duncan in U.S. District Court have now been dropped, he remains in a Ft. Leavenworth, Kan., prison where he was sentenced to seven years by an Army court-martial last year.

Duncan’s attorney said he intends to seek his release.

Duncan’s secret operation, code-named Yellowfruit, made headlines in 1985 when the allegations of fiscal wrongdoing were linked to a Pentagon probe of the Army’s special operations forces, including the elite anti-terrorist Delta Force.

Critics have charged, and federal officials have denied, that Duncan’s prosecution and court-martial were part of an internal Pentagon battle over control of sensitive covert operations of the type usually run by the Central Intelligence Agency.

Duncan was a top officer in the Army’s elite special operations unit when his superiors assigned him in 1982 to set up a dummy company, Business Security International, to carry out counterintelligence missions and ensure secrecy for other Pentagon actions abroad.

In the fall of 1983, three of the firm’s workers and contractors alleged that Duncan had stolen or misused tens of thousands of dollars of Army money on activities that included yachts, illegal wiretaps, drugs, phony invoices for electronics equipment and prostitutes.

An audit cleared Duncan of those allegations. But a Justice Department investigation led to his indictment in late 1985 on seven counts of theft and fraud. Duncan was convicted in 1986 on three of those counts, all related to a charge that he billed the Army $796 for a frequent-flier airline ticket that he had acquired for free.

A U.S. Court of Appeals panel in Richmond, Va., threw out two of those convictions in May and sent the third back to the district court for retrial. The Justice Department has since declined to press the remaining charge. His court-martial conviction was on similar charges.

This spring, Yellowfruit was briefly tied to the Iran- contra affair when one of Duncan’s original accusers, former Army Warrant Officer Thomas Golden, claimed that Duncan’s Virginia security firm set up a Swiss bank account that illegally supplied cash to Lt. Col. Oliver L. North. Investigators say that accusation appears groundless.